5 Family Business Lessons Learned

Me – writing about family business? That’s not what I expected. I didn’t grow up as a child of a family business and I didn’t intend, when I started a software business in the 1980’s, to be creating a family business.

Sure, the kids used to spend the occasional hour or two pasting labels on plastic disks, and we did bootstrap it. But we were a Silicon Valley high-tech software business, not traditional, and family businesses are like farms and hardware stores. Or so I thought.

But time passed, the kids grew up and in the late 1990’s, when we needed a total website rewrite to offer software as downloads and turnkey vendors failed us, our son (@teamreboot) did it. In 2002, we bought back our minority VC partners and returned to 100% family owned. By 2007, when I wanted to write more and manage less, I asked one of our daughters (@mommyceo) to become CEO.

I have to admit that what I’ve learned about this, and the advice I have to give here, wasn’t part of my MBA courses. I’ve been taught by experience, surviving and listening. If you’re an entrepreneur, your work can be like another family member in its own right. It has its demands and deadlines, noises, problems and frustrations.

So it’s not surprising that many businesspeople crave the support and camaraderie that comes from making their calling into a family business. And what family business lessons have I learned? What can I share here that might help you? Let’s take a look.

1. It Doesn’t Get Enough Respect

Websites are full of information on angel investment, high-tech and Silicon Valley. But family business rarely comes up. Sure, down in the trenches, in the auto repair shops, hardware stores and the like, you’ll find people advertising “family owned” as a virtue. But investors are wary of family businesses.

I’ve seen high-tech, high-growth companies run by siblings dismissed immediately from consideration by angel investors just because of the family involvement. Google “family business angel investors” and you’ll see what I mean. (Hint – nothing relevant comes up.)

Family businesses account for 50 percent of U.S. gross domestic product.

Family businesses generate 60 percent of the country’s employment.

78 percent of all new job creation comes from family business.

35 percent of Fortune 500 companies are family-controlled.

Research indicates that family businesses are less likely to lay off employees regardless of financial performance.

Do those numbers surprise you? Me too.

2. It’s Not For Everybody

People often resist the idea of doing business with spouses, parents or children because they believe that those relationships suffer as a result — and that can happen. Trying to avoid that is (if not #1) certainly near the top of the list of priorities for any entrepreneur.

One thing worth saying up front is that if you’re having personal struggles of any kind in the family dynamic (stresses with in-laws, children’s issues, health challenges), don’t think that working together in a family business will help mend those rifts or smooth over those rough spots. If anything, it will throw another stressor into a mix that’s already more than enough to handle – and no family needs that.

But even if your family is as healthy as reasonably possible, on pretty good ground emotionally and financially, and all like each other (no small feat with teenagers in the house), you’ll still want to approach blending family into your business with caution. Let’s face it – it’s tough not to mix business discussions with family interactions. I’ve seen it with my own wife and kids. I know countless others who experience the same blurring of lines. You don’t intend to do it, it just happens.

You may also find yourselves inadvertently falling into inappropriate patterns and habits, parent to child and child to parent. You can take steps to circumvent such role-playing messes, such as adopting a family business code of conduct or hiring a counselor – as we did – a step that proved worth its weight in gold.

While we didn’t always follow best practices, we always at least acknowledged some obvious rules like separating business and personal, promoting on merit, and keeping business discussions away from the dinner table.

3. Nepotism or Meritocracy or Both

I really dislike the word nepotism. It implies incompetence, entitlement, privilege and poor decision making. It brings to mind the cardboard characters in cheap dramas who rise through an organization not on merit, but on simply having the right last name. A picture of the boss’s son or daughter coasting their way to a corner office without putting in anything close to the work it’ll take anyone without a magical blood connection to get there.

There’s another very complete and very important other side to that coin. Who says your own children can’t be smart, interested, competent, hardworking, and trustworthy family members who applied their talents and contributed mightily to the business?

There’s no experience in the world quite like seeing your kids’ eyes light up about the same things that excite you. And when they apply themselves to your business with youthful energy, it can fire you up all over again.

Nothing wrong with that – and trust, and loyalty too.

4. You’re Going to Get Older

It’s going to happen to you eventually. My wife and I were in our early thirties when I started Palo Alto Software in the 1980’s. Now we’re in our mid sixties. That highlights how so-called nepotism is an additional blessing when it comes to succession planning. Yes, you love your work. Yes, you can’t imagine ever stopping. But the day is coming when you won’t be working that business anymore, and then what happens to it?

Your legacy is a lot safer in the hands of people who already love you. If they also love your business, it’s a huge load off your mind knowing you can hand it off to competent management that understands it on a deeper level than any stranger could.

I couldn’t imagine retiring…until my daughter Sabrina showed interest in taking over the helm of my business. Now, I have the best of both worlds. I do more speaking, training and writing, while Palo Alto Software is in more than capable hands – and I know it will stay well-managed in the future.

5. Technology is Neutral

You may remember your grandparents telling you about working side-by-side with their parents in a family concern that both kept everyone fed and became identified with the family as their niche in the community, state, or even a larger region. Often, the business was a trade cultivated right on the homestead – farms, sawmills, metal work or car repair shops, cooking or baking – home-based businesses aren’t really anything new when it comes to entrepreneurs and their families.

Fast-forward to the 21st century however, and that picture changes dramatically. Now, you’re likely to work with staff members located all over the globe. Business meetings can be conducted via video conference, Skype, or a dozen other ways. Decisions can be arrived at and put into action in a matter of minutes rather than weeks or months. And if your family’s involved in your entrepreneurial efforts, they’re as likely to be on the other side of a keyboard as on the other side of an open car hood, circular saw, or assembly line.

All of this might lull you into assuming that modern technology makes it much easier to run a family business than it’s ever been before, but don’t be fooled. When it comes to families and business, the old proverb holds true – the more things change, the more they stay the same. People are still people, in all their quirky humanity. There are good reasons may experts advise against bringing your family into your business. So it’s worth considering the potential downside before you all jump in with both feet.

Conclusion

Of course there’s a downside to family business. But all of that is very well known. A Web search for “dangers of family business” will simply show you. But I’m trying to represent the other side of that picture here.

Over the years, my wife and I have shared the work. The kids came along for the ride – and they’ve all become entrepreneurs in their own unique ways.

We like these people we raised, and we’re happy to have them involved. We always tried to make the workplace a pleasant place to be. This, of course, means for everybody. In our case, a 50-employee company that has been growing revenues at a blistering 18% annually over the last two years.

When your company includes a generous dose of family history and harmony – your triumphs and prosperity are doubly sweet. It’s a challenge to include family in your work…but I’m sure glad I did.

Tim Berry is Founder and Chairman of Palo Alto Software, Founder of Bplans, Co-Founder of Borland International, Stanford MBA, and co-founder of Have Presence. He is the author of several books and thousands of articles on business planning, small business, social media and startup business.

10 Reactions

Growing up on the farm, my dad loved having 4 sons. He spent our entire lives training us to do everything and since we’ve left he’s struggled to find good employees who take ownership of issues and stick around long enough to get as much training. It definitely doesn’t get enough respect.

Joe, I disagree, but I thank you for your comment, because it points out exactly the kind of rush to judgement and stereotyping that leads to my first point, about respect. I ask other readers to think about it, and ask these questions:

1.) Is it true that a business that includes family members is more likely than any other business to have “employees have no idea who no idea who’s in charge?” Or is that just the same folklore that we see in the movies? What do you think? I’m guessing you’ve also seen that phenomenon, but does it take a family business to have people guessing, or just leadership problems, egos, or the same flaws that threaten all businesses?

2.) Is it true that a person in charge who is a family member is more likely to make people “fear for their working lives because they can’t be honest” than anybody else in charge? Has anybody had experience with that problem as, once again, a leadership problem, ego, or some other flaw, unrelated to any family business phenomenon.

Do you see the stereotyping that goes on? Joe is saying family member = bad manager and family member = poor leader. It’s as bad as the stereotyping we’ve put up with, all of us, regarding women, ethnic groups, religions, and so on.

Running family business under the current scenario may not be an easy thing to do, where day today fight or politics are being played upon each other to stay at the top. But it is also a well known fact that family run businesses are strong & have the ability to survive all bad weather.

It is nice to not have to worry about a retirement income as long as us older members remain somewhat active in the companies we founded or grew. It is especially nice to be able to provide for the future family members if they wish to participate. Our company has provided a very nice life professionally and financially for our family members.

We are now in our third generation of our family business. I am the middle generation of a business my parents started in 1957, My daughter joined me when she was 16 and worked for 16 years in every job imaginable. She left to have children and I never thought she would return but she came back 3 years ago – after an 11 year maternity leave and I am so thrilled because I thought I would have to sell the business for it to survive. As the owner’s kid I think both of us have worked very hard to prove to everyone that we were good and that no one gave us anything. We are a very successful company in an industry that has been deemed obsolete by many these past 2 decades – even by President Obama, but the passion both my daughter and I have for our business is shared by our 22 employees and 14 independent contractors. We have created one large family in our company and we have a great and dedicated staff. We provide opportunities for advancement to our employees and we try to promote from within. I am sure there are many family businesses with incompetent managers but then there are many businesses with incompetent managers. There are also many businesses of all types that have high quality people in leadership positions and often family members work harder just to prove themselves. I a, pleased and proud that my daughter is back to take over the next generation of our company.

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